Thinking where to park your cash to meet your short-term needs? Forget about your Savings Account and check out these four awesome alternatives.
Today, financial planning is all about building wealth for the long term, however, we must not overlook our short-term needs. While the safest bet is to park your money in a Savings Account, you’ll be earning only meagre returns. And, therefore, it will take you longer to actually meet your short-term goals.
Additional Reading: Why Goal-based Approach To Investment Is Crucial
Of course, the risk associated with a Savings Account is less. But, you have options other than a Savings Account that can fetch you decent returns, even if risk and volatility is a major concern for you. Want to know more about these investment avenues? Read on.
Bank Fixed Deposits (FDs)
Just like a Savings Account, a bank FD is a safe haven to park your money for your short-term goals. You can choose to store your money in a bank FD for anywhere from 7 days to 10 years. The tenure depends completely on the bank.
Advantages
- Investing in a bank FD is easy. You can do it online too. Click here if you’re looking to open an FD.
- FDs can be renewed on maturity. So, if you don’t require the funds to meet any goals after the FD matures, you can re-invest it and continue earning interest.
- You can opt to receive the interest monthly, quarterly, half-yearly or yearly.
- The rate of interest is higher than a Savings Account. Senior citizens get a 0.5% additional rate of interest than the usual.
The only drawback, however, is that premature withdrawal of funds attracts a penalty. Additionally, some banks do not allow premature withdrawals. However, instead of withdrawing prematurely, you can opt to take a loan against your FD in case you’re in dire need of funds. In this way, your FD investment will continue to earn interest and you’ll get enough funds to cater to your needs too. Usually you’ll be allowed to borrow 70% to 90% of your FD investment as loan and the rate of interest will be around 2% to 2.5% higher than the interest rate on your Fixed Deposit.
Additional Reading: AskBB – Investing In FDs And Mutual Funds
Post Office Time Deposit Schemes
You can consider this as an alternative investment option to bank FDs. Thanks to the sovereign guarantee a Post Office Time Deposit offers to an investor’s principal amount and interest earned, this scheme is much safer option than bank FDs. You can invest in schemes with tenures of one, two, three and five years.
Advantages
- Returns are fixed and assured.
- A great investment option for those who are ultra-conservative when it comes to risks.
- Interest rate goes up to 7.8% per annum. The interest rate is revised every quarter, however, the new rate will apply only to new investments. The older investments will still attract the same earlier-mentioned rates, so you needn’t worry about fall in rates during your investment tenure.
- Minimum investment amount required is Rs. 200. There’s no cap on the maximum amount that can be invested.
- The five-year scheme comes with tax benefits under Section 80C.
- Premature withdrawal is allowed after completing six months of investment.
Post Office Time Deposits have their share of drawbacks too. For starters, it’s indeed a pain to open one although it isn’t necessary that you’ve got to open a deposit only at the post office nearest to you. Opening a Post Office Deposit online isn’t an option, so you’ve got to visit a post office/any public sector bank/authorised private sector banks to open it. In case of premature withdrawal, the rate of interest on your investment will be reduced by a certain percentage. And last, but not the least, the one-year, two-year and three-year schemes do not offer any tax benefits.
Additional Reading: Taxation Of Post Office Schemes
Recurring Deposit
A recurring deposit (RD) is another great option for short-term savings, especially if your needs are to be fulfilled, say within the next 12 months. Plus, this investment option also helps inculcate the habit of savings since you do not have to invest a lump-sum amount in a recurring deposit. In a recurring deposit, you invest a certain amount at regular intervals for a fixed time period. On completing the tenure, you’ll get a lump-sum amount.
Advantages
- No need to invest a lump-sum amount at once. Rather you’ve just got to invest a certain sum of money in regular intervals.
- Similar to bank FDs, the interest rate can go up to 7.9%.
- The minimum investment amount to open an RD is just Rs. 10.
- You can open an RD online.
As far as the disadvantages go, one main concern, as with all other investment avenues mentioned earlier, is liquidity. RDs usually don’t allow you to withdraw your money till the term of the deposit is over. Also, the rate of interest earned on RDs are comparatively lower since the sum invested is generally a smaller amount that that invested in an FD or a Post Office deposit.
Additional Reading: Want To Save On Tax? Here Are 5 Investments With Tax-Free Income
Liquid Funds
If liquidity, a decent rate of interest and minimal risk is what’s on your mind, then it totally makes sense to invest in Liquid Funds to save up for your short-term needs. Liquid Funds are basically Debt Mutual Funds that primarily invest in money-market instruments and debt instruments.
Advantages
- You can cash out your Liquid Fund within a day.
- Low risk and volatility as compared to other Mutual Funds.
- Great for short-term needs that need to be met within a few months or a year.
- Better returns than a Savings Account.
The only drawback so far is that Liquid Funds do not have the capability to earn high returns like other Mutual Funds. But considering that you’re looking for low-risk avenues to park your cash, this shouldn’t even be considered. So, if you’re thinking of investing in Liquid Funds, then we can help create a customised portfolio for you, based on your investment need. Click the link below to proceed.